Overdrafts poor value, says FCA

Overdraft terms set by lenders are "complex and opaque", the Financial Conduct Authority (FCA) has said.

During a consumer credit market investigation, the regulator found that overdrafts are poor value for money and that many customers struggle to understand the costs.

The research reveals that:

Many people are unaware of the potential costs of overdrafts

Many are confused by unarranged overdrafts

Many customers do not see arranged overdrafts as borrowing and instead treat them as income

There may be incentives for firms to increase revenue by using overdrafts.

The FCA will launch a follow-up investigation to examine how lenders set their overdraft limits. The regulator will also look into making some voluntary measures mandatory in the autumn.

Christopher Woolard, director of policy, risk and research at the FCA, said:

"Just about everybody who banks can have access to some sort of overdraft facility - whether they've signed up for it or not. The sheer size of this market is huge and with overdrafts bolted on to over 30 million UK current accounts, we want to make sure it is working well for consumers."

Richard Lloyd, executive director at Which?, said:

"The FCA investigation unto overdrafts is a welcome first step towards putting people back in control of their credit.

"We want to see charges made clearer so that people can compare different borrowing options more easily."